Packaging Corporation's Earnings Zoom

Zacks

Packaging Corporation of America (PKG), the fourth largest containerboard and corrugated packaging manufacturer in the U.S., reported phenomenal first-quarter 2013 results with a net income of $60.6 million or 62 cents per share versus an adjusted net income of $40.8 million or 42 cents per share in the year-earlier quarter.

The year-over-year rise in earnings was primarily attributable to higher demand for corrugated and containerboard products during the quarter, which helped the company to raise their prices. While high product prices contributed 23 cents per share to the reported earnings, higher sales volume and lower recycled fiber costs contributed 5 cents and 1 cent, respectively, to the tally. The reported earnings beat the Zacks Consensus Estimate by 6 cents.

Revenues

Net sales for the reported quarter were a record high of $755.2 million compared with $671.3 million in the year-ago period, representing a year-over-year increase of 12.5%. Net sales for first quarter 2013 exceeded the Zacks Consensus Estimate of $724 million.

Corrugated products’ shipments increased 7.1% per workday in the reported quarter, while total shipments increased 3.8% year over year despite having two less workdays. The production of containerboard jumped 6,000 tons year over year to 646,000 tons. Total containerboard inventories increased 3,000 tons from year-end 2012.

Balance Sheet

Capital expenditures were $27.3 million for the quarter compared with $34.8 million in the prior-year period. The company hiked its quarterly dividend for first quarter 2013 by 25% from $1.00 per share to $1.25. Packaging Corporation ended the quarter with $268 million in cash versus $84.0 million by the end of first quarter 2012.

Outlook

Management was impressed with the results achieved during the quarter, driven by a record production, higher sales volume and high product prices. In addition, a better-than-expected demand for corrugated products was successfully met by an uninterrupted manufacturing process by all the mills.

However, in second quarter 2013, Packaging Corporation expects lower containerboard production and higher operating costs on a sequential basis with outages in three of the four mills taking place due to annual maintenance downtime. Containerboard production is expected to fall by 30,000 tons in the second quarter. At the same time, Packaging Corporation expects higher transportation, recycled fiber, and purchased electricity costs. Consequently, the company anticipates second quarter earnings to be approximately 62 cents per share.

Packaging Corporation currently has a Zacks Rank #1 (Strong Buy). Other players in the industry worth mentioning include International Paper Company (IP), which carry a Zacks Rank #1, and Berry Plastics Group, Inc. (BERY) and Graphic Packaging Holding Company (GPK), both of which have a Zacks Rank #2 (Buy).

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